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“DATA-GATHERING is the least sexy part of economics, which is saying something. Yet it is also among the most important. The discipline is rife with elaborate theories built on assumptions that turned out to be false once someone took the time to pull together the relevant data. Accordingly, one of the most valuable papers produced in 2017 is an epic example of data-retrieval: a piece of research that spells out the rates of return on important asset classes, for 16 advanced economies, from 1870 to 2015. It is fascinating work, a rich seam for other economists to mine, and a source of insight into some of today’s great economic debates.
Rates of return both influence and are influenced by the way firms and households expect the future to unfold. They therefore find their way into all sorts of economic models. Yet data on asset returns are incomplete. The new research, published as an NBER working paper in December 2017, fills in quite a few gaps. It is the work of five economists: Òscar Jordà of the San Francisco Fed, Katharina Knoll of the Bundesbank, Alan Taylor of the University of California, Davis, and Dmitry Kuvshinov and Moritz Schularick, both of the University of Bonn. (Messrs Jordà, Schularick and Taylor have spent years building a massive collection of historical macroeconomic and financial data.) For each of the 16 economies, they craft long-term series showing annual real rates of return—taking into account both investment income, such as dividends, and capital gains, all net of inflation—for government bonds and short-term bills, equities and housing. Theirs is the first such data set to gather all of that information for so many countries over so long a period.”

“That, in turn, suggests that central bankers who hope to “normalise” interest rates may be in for a rude surprise. But low rates of return also mean that government-debt burdens may prove easier to manage than thought—and perhaps that government borrowing could be used more aggressively in times of economic weakness to make up for central-bank impotence. Nor do low rates of return on government debt imply that the world is entering a period of “secular stagnation”, or chronically weak growth. Low rates have in the past been as much a feature of rip-roaring economies—eg, in the 1950s and 1960s—as of the more stagnant ones experienced recently.”